2013 (5) TMI 162 - AT - Central Excise

CENVAT Credit on Sales Commission Services - scope of the term such as - Input services - Rule 2(l) - denial of claim by dept. as sales commission services are not eligible for CENVAT credit as per definition of input service defined under Rule 2(l) of the CENVAT Credit Rules, 2004 - Held that - As decided in CCE, Ahmedabad -II vs. M/ s.Cadila Healthcare Ltd. 2013 (1) TMI 304 - GUJARAT HIGH COURT the words activities relating to business are followed by the words such as . Therefore, the words such as must be given some meaning. In Royal Hatcheries (P) Ltd. v. State of A.P. (1993 (10) TMI 85 - SUPREME COURT) it is held that the words such as indicate that what are mentioned thereafter are only illustrative and not exhaustive. For an activity related to the business, it has to be an activity which is analogous to the activities mentioned after the words such as . What follows the words such as is accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security . Thus none of the illustrative activities, viz., accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security is in any manner similar to the services rendered by commission agents nor are the same in any manner related to such services. Under the circumstances, though the business activities mentioned in the definition are not exhaustive, the service rendered by the commission agents not being analogous to the activities mentioned in the definition, would not fall within the ambit of the expression activities relating to business . Consequently, CENVAT credit would not be admissible - No distinction can be made between the commission paid to the foreign agent and the agents operating within the territory of India because nature of services provided by both the categories of the agents are same - against assessee.

Summary

Issues Involved:
1. Eligibility of CENVAT Credit on Sales Commission Services.
2. Interpretation of 'Input Service' under Rule 2(l) of the CENVAT Credit Rules, 2004.
3. Applicability of the Gujarat High Court's judgment in the case of Commissioner of Central Excise, Ahmedabad-II vs. M/s. Cadila Healthcare Ltd.

Detailed Analysis:

1. Eligibility of CENVAT Credit on Sales Commission Services:
The primary issue in this case is whether the Respondents are eligible to avail CENVAT Credit on Sales Commission Services. The department's stance is that sales commission services do not qualify as input services under Rule 2(l) of the CENVAT Credit Rules, 2004. The department relied on the Gujarat High Court's judgment in Commissioner of Central Excise, Ahmedabad-II vs. M/s. Cadila Healthcare Ltd., which held that services provided by commission agents do not fall within the definition of 'input service' as they are directly concerned with sales rather than sales promotion.

2. Interpretation of 'Input Service' under Rule 2(l) of the CENVAT Credit Rules, 2004:
The definition of 'input service' under Rule 2(l) includes services used in relation to sales promotion. The Respondents argued that sales commission paid to agents relates to their business activities before the clearance of goods, as the orders procured by the commission agents lead to clearances. However, the Adjudicating Authority and the Tribunal had differing views. The Adjudicating Authority held that commission agents are involved in direct sales, not sales promotion, and thus their services do not qualify as input services. The Tribunal, however, considered such services as sales promotion and allowed CENVAT credit.

3. Applicability of the Gujarat High Court's judgment in the case of Commissioner of Central Excise, Ahmedabad-II vs. M/s. Cadila Healthcare Ltd.:
The Gujarat High Court in the Cadila Healthcare case provided a detailed analysis, stating that commission agents are directly involved in sales rather than sales promotion. The court emphasized that sales promotion involves activities targeting a large population of consumers, unlike the direct sales activities of commission agents. The court also clarified that the inclusive part of the definition of 'input service' does not cover services rendered by commission agents, as these services are not analogous to activities like accounting, auditing, or quality control.

The court further noted that the term 'sales promotion' involves activities designed to boost sales in general, such as advertising campaigns and free-sample campaigns, which are distinct from the direct sales activities of commission agents. Consequently, the court concluded that commission paid to agents does not fall within the ambit of 'input service' as defined in Rule 2(l).

Conclusion:
The judgment concludes that the services provided by commission agents, whether foreign or domestic, do not qualify as 'input services' under Rule 2(l) of the CENVAT Credit Rules, 2004. Therefore, the Respondents are not eligible to avail CENVAT Credit on sales commission services. The Order in Appeal passed by the Commissioner (A) is set aside, and the Order in Original dated 06/01/2010 is restored. The appeal filed by the department is allowed, aligning with the Gujarat High Court's judgment in the Cadila Healthcare case.